ICICI Securities has reiterated a 'Reduce' rating on L&T Technology Services (LTTS) while revising the target price to Rs 3,870, reflecting concerns over near-term margin headwinds and moderate revenue growth. Although LTTS has demonstrated strong deal traction and a positive medium-term outlook, the integration of Intelliswift has diluted operating margins, and macroeconomic uncertainties persist. Management remains optimistic about achieving double-digit growth in FY26, driven by large deal wins, but execution risks loom large. Investors are advised to tread carefully, given the rich valuations and muted near-term earnings outlook.

Muted Q4FY25 Performance Highlights Margin Pressures

LTTS posted a mixed set of Q4FY25 results:

Revenue grew by 12.4% sequentially to Rs 29,824 million, buoyed by the consolidation of Intelliswift revenues.
However, operational performance faltered:

EBIT margins declined sharply by 270bps QoQ to 13.2%.

Net Profit declined 3.5% QoQ to Rs 3,111 million.

EPS dropped 3.6% QoQ to Rs 29.4.

While revenue momentum remained intact, profitability was hit by additional customer support costs post-Intelliswift integration and ongoing wage cost pressures.

Deal Momentum Robust, but Execution Risks Remain

The company’s deal pipeline remains encouraging:

LTTS secured multiple large contracts, including deals worth over USD 80 million, USD 50 million, and several smaller engagements.

Key sectors witnessing traction:

Industrial products and solutions

Software Defined Vehicles (SDV)

AI, data center, and robotics

Management reiterated confidence in achieving double-digit CC revenue growth in FY26, underpinned by deferred ramp-ups in sustainability and med-tech verticals.
However, the macroeconomic environment could delay deal conversions, impacting near-term visibility.

Vertical and Geographical Performance Overview

Q4 vertical-wise revenue performance was uneven:

Hi-tech vertical grew 27.9% QoQ, led by Intelliswift contributions.

Sustainability vertical rose 1.7% QoQ, expected to improve further as deferred deals materialize.

Mobility vertical declined by 0.3% QoQ, but is expected to stabilize from Q1FY26 onward.

From a geographical perspective:

North America posted a strong 11.5% QoQ growth.

India witnessed an impressive 18.9% QoQ surge.

Europe and RoW regions remained relatively muted.

The company’s client base expanded by 11% QoQ to 421 active clients, largely led by Intelliswift’s addition.

Financial Forecasts and Valuation Metrics

ICICI Securities has revised its earnings model, reflecting moderation in growth assumptions:

The target price of Rs 3,870 is based on a 25x one-year forward earnings multiple, reflecting cautious optimism but limited upside.

Stock Levels and Investment Strategy

Current Market Price (CMP): Rs 4,480

Target Price (TP): Rs 3,870

Potential Downside: ~14%

Immediate support is at Rs 4,400 and Rs 4,200, with resistance near Rs 4,700 and Rs 4,900.
Fresh entry is discouraged at current levels given stretched valuations and earnings risks. Investors should await a correction towards Rs 4,200 for better risk-reward.

Key Risks and Upside Triggers

While near-term concerns persist, the following factors could improve the outlook:

1. Faster-than-expected Recovery in Mobility and Automotive:
Deal wins in automotive verticals and ramp-ups could accelerate growth.

2. Improved Deal Conversion Rates:
Faster closure of deals, especially in Europe and Industrial segments, would drive revenue upgrades.

3. Strong Cost Rationalization:
Better-than-expected margin management post-Intelliswift integration could surprise positively.

However, deterioration in U.S. macro conditions or further cost escalations could amplify downside risks.

Management Commentary Reflects Cautious Optimism

During the earnings call, LTTS management emphasized:

Medium-term revenue target of USD 2 billion remains intact.

Expectation of 16.5% EBIT margin by Q4FY27–Q1FY28, driven by operational efficiencies.

Sustainability, med-tech, and software platform revenues to expand QoQ.

No immediate wage hikes announced, providing temporary cost containment.

Management's strategic focus remains firmly on scaling sustainability and hi-tech verticals, while maintaining discipline in new deal pricing.

View for Long Term Investors

While L&T Technology Services has maintained an optimistic narrative on future growth, the immediate outlook remains challenged by margin compression and macroeconomic uncertainties.
For now, ICICI Securities advises caution with a 'Reduce' rating.
Investors should monitor margin trends, deal closures, and execution against medium-term targets before taking incremental exposure.